Insurers adopting artificial intelligence (AI) must ensure obligations to deliver financial services efficiently, honestly and fairly are met, Australian Securities and Investments Commission (ASIC) Deputy Chair Karen Chester says. 

ASIC is starting to look at the use of AI, as automated decision making is introduced and firms plan to adopt the technology to reduce costs in claims handling and other areas, she told the Insurance Council of Australia (ICA) annual conference.

“We welcome that innovation, but you just need to be mindful, you’ve got to get the basics right,” she said.  

As well as being able to explain “the why” for an AI decision, recommendation or prediction, insurers also need to ensure AI use meets the “efficiently, honestly and fairly,” obligations, she said. 

ASIC is focusing on pricing promises, product design and distribution obligations (DDO) and claims handling in its insurance regulation. 

Ms Chester says many insurers still have multiple and legacy systems outpaced by the complexity of their products and distribution channels, and underinvestment will continue to get in the way of delivering on pricing promises. 

“Looking ahead, we have broadened our focus to pricing transparency. Premium transparency is paramount for customers to clearly understand your promises, and to restore customer trust in its delivery,” she said. 

Following the introduction of DDO rules, ASIC has issued 39 interim stop orders for insurance so far, with each lifted after corrective actions including “significant amendments” to target market determinations. 

The next phase of DDO compliance extends to the distribution phase and will also focus on low value insurance products, Ms Chester said. 

ASIC says internationally some insurers are rethinking their products and looking at basic or partial cover offerings, such as not all perils, or not a full rebuild, while some start-ups are using AI to simplify and tailor offerings to match the needs and financial situation of the policyholder. 

DDO guard rails should afford confidence for local product innovation, Ms Chester says. 

“Looking ahead, we hear much talk, but need to see attention and action, from insurers on innovation in product design,” she said.